Counterparties: Passing Abenomics
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The world is questioning the effectiveness of Abenomics — the economic policies advocated by ShinzĹ Abe, the prime minister of Japan. Abeâs plan to revitalize the countryâs sluggish economy seemed to be working, as reflected in the Nikkei which soared to around 15,100 in May from 10,395 in December. That has changed: the Nikkei fell 7% yesterday and is down 20% since its May high, closing at 12,445 Thursday. Swiss hedge fund manager Felix Zulauf said Japan would Â âcause the next big global crisisâ.
The reality is it is probably too soon to tell whether Abenomics is working. The prime ministerâs three-pronged plan is certainly ambitious. In order to do âwhatever it takesâ to hit a 2% inflation target, the Bank of Japan is flooding the markets with money and the government has implemented major fiscal stimulus. Last week, Abe proposed a growth strategy that includes a target to lift per-person income by 40% over 10 years and âa series of deregulated and lightly taxed zones around the countryâ. Abe has said this is the most important of the three prongs, but The Economist notes that the announcement âleft many disappointed by its timidityâ.
As far as growth goes, David Keohane points out that âitâs hard to escape the effects of demographic determinism.â Japan has an aging population, a very low fertility rate, and Abe has not yet proposed a great solution to fix this.
What Japan does have going for it is low unemployment, although as Noah Smith has pointed out, a lot of that has to do with falling real wages andÂ women opting out of the labor force. But Joseph Stiglitz is still bullish on Japan, noting that âwe see that even after two decades of âmalaise,â Japanâs performance is far superior to that of the United Statesâ Â – if you consider a broader range of factors like inequality and life expectancy. The Nikkei is still up almost 20% since the beginning of the year. Â – Shane Ferro
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